Lookers Plc: Business Strategy, SWOT Analysis, and Financial Analysis

This report provides an in-depth analysis of Lookers Plc, including their business strategy, SWOT analysis, and financial analysis. Learn about their market position, revenue growth, earnings per share, and more.

Case A: Lookers plc
EXECUTIVE SUMMARY

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The contract for supplies to Lookers Plc is of utmost importance to the company for our future
prospects. If we are able to get our hands on this deal/ contract, then it will be great for the
company. Lookers Plc based in the United Kingdom and Ireland is a car dealership chain. It’s
based in Altrincham and represents many motor brands, listed in London Stock Exchange. Over
the years, Lookers Plc has modified the ways of carrying on business in the consumer services.
Lookers also engages in agricultural and leasing businesses through the retail clientele. The
company is a small sized cap stock with a market capitalization of £ 382m. To begin with, we
shall analyze the market position of the company and it’s financial and accounting data, to get a
better understanding of its prospects.
CASE A: LOOKERS PLC- TABLE OF CONTENTS

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1. Introduction…………………………………………………………………....3
1. Looker’s Business Strategy…………………………………………………...4
2. Looker’s SWOT Analysis……………………………………………………...6
2. Looker’s Accounting and Financial Process…………………………………8
3. Lookers vs. Caffyns Plc……………………………………………………….15
3. Conclusion……………………………………………………………………...17
1. INTRODUCTION
Lookers Plc. Founded in the year 1908, is a chain leadership dealing in cars and automobiles.
The company has its base in the United Kingdom and Ireland. The company, being listed on
the London Stock Exchange, represents on the multiple car brands. Having its core base in

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Manchester, it also deals with the sale of bicycles, car spare parts and the other accessories.
In order to develop more, the company had acquired numerous garages. The company being
listed on the London Stock Exchange started issuing shares on the stock exchange which was
the ultimate source for the additional funds in the company, thereby enabling it to expand
further. After meeting its expansion policy, the company had successfully acquired lot of
dealerships of the renowned brands to generate more funds in the business.
(Referenceforbusiness.com, 2019) The company, Lookers is one of the outstanding motor
retail groups in the United Kingdom, who also provides after sales services. The company’s
wide range of product offerings include British Leyland makes, adding Talbot, International
Harvester, Vauxhall, Peugeot, Fiat, and Mercedes Trucks. Etc. The brands that the
organization includes are Ferrari, Jaguar, Aston Martin, Audi, Bentley, Land Rover, Lexus,
Toyota and many more. Lookers boasts of growing its existing businesses through a
combination of organic growth, seeking profitable opportunities to increase their revenue and
presence. (Hargreaves Lansdown, 2019)
2. Lookers Business Strategy
Lookers Plc has the business pattern of considering the correct set of brands at the correct
locations with the perfect solution to progress against the strategic business goals. The company,
Lookers Plc.is one of the outstanding automobile retail group of companies in the United
Kingdom, who also provides after sales services. The company deals in new as well as second
hand cars and also the less heavy commercial vehicles , operating in around Ireland. This dealing

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in the sale of new and used cars, vans and its services beyond sales, forms the major source of
generating revenue in the company. The group is dedicated to providing the services, support,
and other expert advice from the purchase till the relevant after sales care. Their strategy is
focused on and even more committed to provide the retail experience to their customers.
Broadly their strategies can be categorized into 3 factors:-
● People-They hire and nurture the best of talents and continuously empower them to
deliver the best experience for their customers
● Marketing-Brand proposition development is their strategy to enhance customer
experience and build reputation with prospective employees, suppliers and shareholders
● Technology-to ensure a seamless experience for its customers, Lookers is striving in an
Omni-channel retail environment. It focuses on best after sales service
The marketing business strategy is generally underpinned by choosing the best brands, the best
locations to establish the business and the utmost important is the smart execution of the
strategies. Lookers Plc aims to benefit from the positivity in the car market cycle. The company
focuses on the best strategic quantum to generate revenues in the company. Lookers’ key
highlights are jotted down as below:
● The company strives to continuously encourage sales for the new cars to speed up its
profit earning system.
● It aims to strengthen its portfolio of franchise relations and the dealerships for growing
further.

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● The company focuses on the digital strategy for the promotion of the business as it
allows the customers to deliberately view the company details at the ease of just a single
click.
Lookers also engages in agricultural and leasing businesses through the retail clientele. The
company’s wide range of product offerings include makes of the British Leyland ,
International Harvester, Vauxhall, Fiat, Peugeot, Fiat, and Mercedes Trucks. Etc. The brands
that the organization includes are Ferrari, Jaguar, Aston Martin, Audi, Bentley, Land Rover,
Lexus, Toyota and many more.
The company followed the strategically way of closely keep a track on its dealership
executives which was the only way they could detect that there was an internal executive
who was indulged in the whistleblowing policy and used to leak out the company policies. It
was a crucial turnaround for the business. The executive involved was immediately fired as
per the policy and strategic norms. (Companieshouse.gov.uk, 2019)
As stated the company was forced to change its strategy from offline to online. The
customers were increasing each day and with the advent of latest technologies, they were
keener on scrolling through their screen instead of visiting the showrooms for the offline
scanning of the products. Moreover, only half of the consumers were willing to still visit the
dealership and ask for a test drive. Others were reluctant to do so and were happy enough in
completing the transaction online.
With this digital conversion of the business, the company was not being able to generate the
profits as was done in the offline dealership.

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Lookers boasts of growing its existing businesses by combining with the organic growth,
looking for the profit making opportunities by increasing their revenues and presence. The
company has an academic record of the successful earnings-enhancing acquisitions and have
been able to produce an average return on investment of more than 15% on the acquisitions
done in the recent years. (Hancock, 2019)
3. Lookers SWOT Analysis
A famous motor retail of UK and after sales service provider, Lookers plc's operations includes
both the Republic of Ireland and all the four popular UK countries. It maintains its dominant
position by continuous evaluation and analysis of its SWOT (Strengths Weaknesses Threats and
Opportunities). (Fern Fort University, 2019) The below table clearly outlines the SWOT analysis
of the company.
Strengths Weakness Opportunities Threats
Strong distribution
network
Relatively Higher
days inventory
Decline in the
transportation costs
because of the lower
shipping charges
Scarcity of skilled
workforce in few
specific global
market

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Reliable suppliers Low investment in
new technology
The new taxation
policy-opening up of
newer opportunities
Changing consumer
behavior
Very successful at
the on going
Marketing
strategies for its
products
Poor forecasts of
products demand-
leading to missing
opportunities
Lower rate of
inflation -resulting in
more market
stability.
Rise in raw materials
prices
Successful
execution of new
projects
Lack of diverse
products range
Government duty
free trade agreement-
enables the lookers
with a chance to
enter new markets
Pay level rise and
the upward going
prices in China can
lead to threats to
profitability
Strong dealer
community
High rate of
workforce attrition
Currency
fluctuations in
politically volatile
climate

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Successful brand
portfolio
4. Lookers Accounting and Financial analysis
Financial analysis is the analytical process by which the performance and stability of a company
can be predicted and analysed on the basis of the financial data of same. It helps in analyzing if
any project, business or an entity is solvent, profitable, liquid and stable enough.
Lookers PLC is a small cap-sized stock having a market capitalization of £ 382m.Presently, the
stock of LOOK is undervalued when it’s growth outlook is factored into its intrinsic value. We
shall evealuate Lookers Plc. financial analysis on the basis of data given in table below:-
Annual Results Year
ending 31
December
2014
Year
ending 31
December
2015
Year
ending 31
December
2016
Year
ending 31
December
2017
Year
ending 31
December
2018
£m £m £m £m £m

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REVENUE 3042.9 3649.1 4281.7 4696.3 4879.5
OPERATING PROFIT -11.6 -13.8 -17.6 -16.3 -18.3
PROFIT BEFORE
TAXATION
59.2 62.8 91.8 58.4 53.1
TAXATION -12.4 -12 -10.5 -10.5 -9.6
PROFIT ATTRIBUTABLE
TO SHAREHOLDERS
46.8 50.8 81.3 47.9 43.5
PER SHARE DIVIDEND 2.84p 3.12p 3.64p 3.89p 4.08p
EARNINGS PER SHARE 12.03p 12.88p 20.51p 12.06p 11.07p
SHARE CAPITAL 19.7 19.8 19.8 19.9 19.4
RETAINED EARNINGS 145.7 185.7 229.6 272.1 286.4

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NET ASSETS 256.9 297.8 341.7 385 399.3
has been taken from (Yahoo, 2014)
As per the data above, we can inter the below observations:-
❖ Revenue has been on the rise from 2014 and has increased 60% approximately since
then, which is quite huge and promising
❖ Earnings per share has increased from 13.52 per share to 14.68 per share, which is also
very promising and in percentage terms is 7.9%
❖ Dividend per share distributed by the company has been on the rise every year from
2.84 per share in 2014 to 3.12 per share in 2015 to 4.08 per share, this is although not
very attractive feature as it could mean that there are no good investment opportunities
for the company to use it’s profits
❖ Net Assets of the company have experienced an increase of 35.66% from £256.9m to
£399.3m over a period of 5 years from 2014-2018
❖ Retained Earnings has also been on the rise over the same period, with% rise being as
high as 96%.(eCoinValues.com, 2019)
With the help of the data in the table below, we can analyze Lookers' cash flow statements over
the last 4 years to understand it’s liquidity and solvency situation:-

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Currency in GBP. All numbers
in thousands
Period ending 31-12-2015 31-12-2016 31-12-2017 31-12-
2018
Net income 50,800 81,300 47,900 43,500
Depreciation 18,300 21,500 20,700 20,600
Adjustments to net income -3,900 -1,09,000 -19,000 -5,200
Changes in accounts receivable -73,200 27,600 -16,100 48,900
Changes in liabilities 2,89,900 93,200 1,43,000 -60,400
Changes in inventory -2,67,200 -23,400 -1,44,700 1,400

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Changes in other operating
activities
17,800 6,100 - -
Total cash flow from operating
activities
32,900 99,400 37,800 54,900
Investment activities, cash flow
provided by or used in
Capital expenditure -35,200 -36,300 -46,100 -25,700
Total cash flow from
investment activities
-1,32,400 2,300 -47,500 -12,200
Dividends paid -11,600 -13,200 -15,000 -15,600

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Sale purchase ofstock - - - -
Net borrowings 50,400 3,800 30,600 -13,400
Other cash flow from
financing activities
- - - -
Total cash flow from financing
activities
39,700 -9,400 16,400 -38,300
Effect of exchange rate
changes
- - - -
Change in cash and cash
equivalents
-59,800 92,300 6,700 4,400

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Lookers had a record PBT in 2016 of £4.3 billion and it’s revenue increased 17%to £4.3 billion.
It operates in two distinctly separate sectors within the UK motor retail market which makes it a
uniquely structured business house. (www.tuugo.co.uk, 2010)
As per the Markerscreener.com predictions, below are the forecasts for the year 2019:-
Annual results 2019 estimate
£m
Sales 4795
EBITDA 106
EBIT 79.6
EBT 51.5
Net Income 41
EPS 11.1

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Analyzing the above forecasts, we can infer that the future also looks quit lucrative and
promising for Lookers PLC, so it shall be very profitable if we are able to get the contract for our
company.
5. Lookers vs Caffyns plc
When we compare the current state of our major customer which is Caffyns plc with that of
Lookers plc, it can be clearly outlined why it will be a great prospect for the future of our
company if we get the Lookers contract. (Simply Wall St, 2019) Employing Porter's five forces
competitive rivalry in the context of suppliers and buyers power, we can enumerate the points as
below between both of these automobile suppliers:-
1. Lookers Plc. Into leasing Industries contributing 10% of the profits produced
through Platts Harris, “sales, service and parts supplier of agricultural, construction
machinery and groundcare. (hussain coventry, 2017)
2. Lookers Plc has been heavily investing in technology so that they are ready for all
the changes brought in by the digital age. CRM, campaign management and cloud
hosting tools to fitting our dealerships, Wi-Fi availability, etc. are all focus areas so that
the company can drive and provide better customer experience with prioritizing more
intelligent and agile retail process powered by competitive individuals
3. To deliver its new program for prevention of accidents, Lookers has come with a
new “Lookers DriveSafe Program”. Under this program, the company shall partner with
its customers to identify and detect risks within their fleet and then create a solution. This

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shall help in minimising accidents and lessening the risks for both the drivers and the
company.
4. Lookers Plc has sold its parts division to Alliance Automotive Group. They shall
use the proceeds from this sale which is proposed to be £120m to obtain more dealerships
in the UK
5. Customers search online for manufacturing houses before choosing their
dealerships as per Lookers in 2017,which emphasizes the importance of Digital within
the groups.
Lookers plc as of now is undervalued when compared to all of its peers in the industry-Pentagon
plc,Cambria Automobiles plc, Halfords Group plc and Caffyns plc too. The analysis is on the
basis of the below points:-
● Lookers has relatively high profit margins while operating with median asset turn
● Compared to Caffyns, Lookers' operating performance is better. It is keeping up with
the market needs of maintaining relatively higher rates of return better than its peers
● Lookers Plc may possess plenty of interest coverage to add on additional debt to its
portfolio prudently
● The P/Earnings ratio of Lookers plc is significantly lower than the median of its peer
group: around 11.
6. CONCLUSION

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Automotive is the largest sector of the business and work as strong brand network all over the
country. The company offers the products and services with the principle that the quality of the
same delivered has to be maintained throughout the period of sale and also for the after sales
service. The company indulges in 154 dealerships including almost all the local brands but
having connection on the national basis with the help of its motor retail sector in the UK. The
company relatively has high profit margins even when it is working with the median assets. The
primary goal of the company is to become both locally and globally renowned in delivering the
best customer satisfaction in the motor retail sector in the entire country of the UK. The company
has been heavily investing in the technologies so that they are ready for all the changes brought
in by the digital age. The marketing business strategy is generally underpinned by choosing the
best brands, the best locations to establish the business and the utmost important is the smart
execution of the strategies.

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Case B: Scarman plc
EXECUTIVE SUMMARY
This paper shows that the Scarman Plc has to figure out which investment or production option is
best for them. Which one can give the best return and early return. This is because the discount
rates will be same mathematically only few expenses will be changed. When the implied

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discount rates are varying, the ex-ante returns will have no resemblance to the implied discount
rate for the year in consideration. Scarman Plc has made a very good production plan. Both the
options are really good and the net present value does clears this concept.
TABLE OF CONTENTS
1. Introduction……………………………………………………..21
1. Option-1………………………………………………………...22
2. Option-2………………………………………………………....23
2. Assumptions…………………………………………………...…23

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3. Analysis……………………………………………….………….23
4. Conclusion……………………………………………..…………25
5. Recommendation………………………………………………..25
6. References……………………………………………………….26
1. INTRODUCTION
Scarman plc is an electronic research company based on the University Technology park. They
have come out with his new era smartwatch that helps in fitness. They are analysing the best
option for them. he first action is to set up its own production facility locally and the second is to
license the production to a Hong Kong company SRC Inc which has been set up by former
students of the research center. In both scenarios scarman would supply and retain ownership for
the 5 years of the machinery needed for production but in option 2 all the other manufacturing

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costs would be borne by SRC Inc who would invoice scarman for the goods produced. In order
to be a worthwhile investment, the expected return on equity is greater than the cost of capital.
The capital cost of the return to capital is expected to earn in an alternative investment with
similar risk.
General Information
Cost of capital 11%
Sales (units)
1st year 10000
2nd year 12,000
3rd year 13,500
4th year 13,500
5th year 13,500
Selling Price 250
2. Option-1
EXPENSES
Machine cost 2000000
Residual value 250000
Rent 350000
Fixed Costs 450000

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Variable Costs 120
DEPRECIATION
Cost of
machine 2000000
residual value -250000
Net Value 1750000
Depreciation 350000
YEAR 0 1 2 3 4 5
Sales (units) 10000 12,000 13,500 13,500 13,500
INVESTMENT -2000000
REVENUE 2500000 3000000 3375000 3375000 3375000
VARIABLE
COST -1200000 -1440000 -1620000 -1620000 -1620000
FIXED COST -450000 -450000 -450000 -450000 -450000
RENT -350000 -350000 -350000 -350000 -350000
DEPRECIATION -350000 -350000 -350000 -350000 -350000
PROFIT 150000 410000 605000 605000 605000
ADD BACK
DEPRECIATION 350000 350000 350000 350000 350000
CASH FLOW 500000 760000 955000 955000 955000
DISCOUNT
FACTOR 1.11 1.2321 1.367631
1.5180704
1
1.6850581
55
DISC
CASHFLOW -2000000 450450.5 616833.0 698287.8 629088.1 566746.0

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NET PRESENT
VALUE
961405.36
75
3. OPTION - 2
EXPENSES
Machine cost 2000000
Grant 10%
Actual Machine Cost 1800000
Residual value 200000
Fixed Costs 250000
Variable Costs 170
DEPRECIATION
Cost of
machine 1800000
residual value 200000
Net Value 2000000
Depreciation 400000
YEAR 0 1 2 3 4 5
Sales (units) 10000 12,000 13,500 13,500 13,500
INVESTMENT -1800000
REVENUE 2500000 3000000 3375000 3375000 3375000

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VARIABLE
COST -1700000 -2040000 -2295000 -2295000 -2295000
FIXED COST -250000 -250000 -250000 -250000 -250000
DEPRECIATION -400000 -400000 -400000 -400000 -400000
PROFIT 150000 310000 430000 430000 430000
ADD BACK
DEPRECIATION 400000 400000 400000 400000 400000
CASH FLOW 550000 710000 830000 830000 830000
DISCOUNT
FACTOR 1.11 1.2321 1.367631
1.5180704
1
1.6850581
55
DISC
CASHFLOW -1800000 495495.5 576251.9 606888.8 546746.7 492564.6
NET PRESENT
VALUE
917947.58
04
4. Assumptions
● I have assumed that the sales units is statice. There is no increase or decrease. It is exactly
as per the information.
● I have not assumed any tax component as it varies in different countries.
5. Analysis
Let's compare each component and derive the conclusion
● Investment: Both the option involves equal investment though option 2 gets a grant that
curtail the investment

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● Expenses: Option-2 incurs less expenses as it doesn't have rent expense and even the
fixed cost and variable cost is less that Option-1.
● Net Present value: If we see the NPV of Option 1 is higher that Option-2 hence we
should accept option 1.
6. CONCLUSION
The two options under consideration have arrived at foundation and sound money related
capacity. The two options will work for over five years. However, two options work in various
nations, yet they are free of one another. In term of profitability, option-1 has better monetary
execution that Option-2. This makes Option-1 has more return goal than Option-2. Option-1
performs far superior to Option-2 throughout the years under thought as far as gross profit edge
and net profit edge.
2. RECOMMENDATION
By and large, there are two components which affect the nature of financial reports of a specific
organization. Such factors incorporate internal elements, for example, the administration, review
council, top managerial staff, and the internal review. Different details are viewed as outer, and
they incorporate, the controllers, capital market supervisors, financial Proclamations examiners,
investors, and the legal framework. Such angles significantly affect the nature of financial
reports; the internal review has noteworthy ramifications on the environment of financial
statements. The internal investigation, by and large, has specific consequences on the nature of
monetary revealing. For instance, the internal review helps in the decrease of different mistakes
in the financial reports and in this way hinders the inconsistencies in the financial statements.
The reduction of such errors will have specific ramifications, for example, an expansion in the
speculators' certainty, and this is mainly in the dependability of financial detailing and the

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viability of the corporate control. The other effect of the internal review on a decent quality
financial reports is that it will expand the degree of exactness of the story and thus trust in the
monetary articulations will likewise be developed, and this is a fundamental advantage to the
organization. The internal review has an obligation of guaranteeing that an unbiased, reliable,
and target data has been given to an association, and this is especially critical to the
administration of the specific association. It thus suggests that the impact of the internal review
on the quality of financial report is that it gives data which is dependable.

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